Health Benefits for Small Businesses
Running a small business comes with a lot of decision making. And an essential decision that impacts your employees' satisfaction and retention is considering what health insurance to offer. Small business health insurance options are available, and it’s essential to take the time to understand what makes the most sense for you and your employees.
It’s worth noting that health insurance offerings don’t have to be one-size-fits-all. You may be more familiar with group health insurance for small businesses. But traditional group health insurance isn’t the only option anymore. There are many other available options for small business health insurance.
Here are some factors to consider when deciding on health benefits for your small business:
- Cost – What are the premium prices and out-of-pocket expenses for your employees?
- Coverage – Does this health insurance plan cover the essentials and fit the needs of my small business employees?
- Provider network – Does this insurance network include facilities and providers that my employees will prefer to use?
- Flexibility – Does this plan offer flexibility in choosing deductibles, copays, and coinsurance?
- Contributions – How much will you as the small business employer pay versus how much the employee contributes?
- Compliance – Hoes this plan comply with state and federal regulations?
- Implementation – Is this plan easy to enroll my employees in, and is it administered efficiently?
Choosing health benefits for your small business doesn’t have to be a difficult task. But as an employer, you do need to weigh your options carefully and choose what’s best for your unique situation. It’s good to consider short-term and long-term options and look at your goals for company growth when choosing a health insurance option.
Take Command is here to support your small business in health insurance decision-making. Check out our in-depth guide on small business health insurance to help you navigate the modern healthcare options for your business.
Best health insurance for small businesses
As a small business owner looking to offer benefits to your employees, you’re likely asking what’s the best health insurance for small businesses? In recent years, the most widely known option was traditional small-group health insurance. But there are other types of affordable health insurance options for small business owners.
A few of the most common small business healthcare offerings are:
- Small group insurance
- Self-funded plans
- Health reimbursement arrangements (HRAs)
Small group insurance or fully funded insurance is a well-known model that is familiar to employers and employees. Typically, a small business insurance broker is brought on to offer traditional health insurance plans which makes the process easy for employees and it’s great for recruiting for your small business. However, required participation rates, fluctuating yearly costs, and lack of program flexibility are cons to this traditional health insurance offering.
Self-funded plans are when businesses pay for employees’ medical expenses with their own funds. It’s commonly used in larger companies and set up with a third-party administrator. While self-funded plans are highly customized and require less regulation, the management can be complicated, and a large number of cash needs to be available to fund claims.
Health reimbursement arrangements (HRAs) allow employees to purchase their own health insurance, then submit claims to the employer for reimbursement. This is an excellent and affordable health insurance option for small businesses because reimbursements are tax-free, the budget is predictable, and the insurance plans and options are flexible for every employee. Although there are some limits to provider networks and some owner participation limitations, overall HRAs are easy to set up, they offer more plan choices for your employees, and employers get to keep unused funds.
Health insurance for small businesses with one employee
If you’re a small business with one employee there are still small business health insurance options available to you. Among these are:
- Small-group health insurance plans
- Individual health plans
- Setting up a health reimbursement arrangement (HRA).
Small group insurance is usually the most known health insurance for small businesses with one employee. You’re able to buy small-group health insurance plans directly from health insurance companies. You can shop health insurance plans for your small business through health insurance marketplaces and decide which plan best suits your needs. Small group health insurance is tax-free and allows a variety of options, but typically they’re expensive and have premium increases every year you’re on the plan.
Another option is purchasing an individual health insurance plan, through exchange or the ACA exchanges. These can be very expensive since they’re priced out individually, and you may be subject to premium increases from year to year.
Lastly, health reimbursement arrangements (HRAs) are great for providing flexibility and portability to your employee. A small business can offer health coverage through an HRA which reimburses your employees for their health insurance premiums and other eligible medical expenses. This too allows for growth in your business and will be helpful with employee retention as you grow and hire more people.
However, if you’re a small business owner with YOU as the sole employee, there are some workarounds we’ll need to discuss.
Health insurance for small business owners
If you’re a small business owner working for yourself —maybe a freelancer or contractor — you can still get health insurance even if your small business has no employees. But you need to be careful because if you own an LLC or a sole proprietorship, the IRS sees no separation between you and your business.
When looking for health insurance as an LLC owner or small business owner working for yourself, you’ll need to consider:
- What is correct from a tax standpoint
- What health insurance plan will work best for your budget
- What plan will grow with you as your company grows in the future
- If you’re married, you could consider jumping onto your spouse’s employer-sponsored health insurance plan. Or another great option (our personal favorite) is self-employed health insurance with an HRA.
- If you work for yourself and are married, you can simply hire your spouse as a W-2 employee, then make them the primary member on your family health plan. You then can cover yourself as a dependent and set up an HRA for your spouse. This allows both of you to be covered with an efficient, flexible, and affordable health coverage plan!
- If you’re single, take the self-employed tax deduction and buy an individual health plan for yourself.
It may seem complicated, but a good HRA administrator can help you through this process. It can be possible to get great health insurance as a small business owner with no employees through a small business HRA.
Rules for offering health insurance to employees
It’s critical to understand the rules for offering health insurance to employees. You want to make sure your health insurance offering is compliant with the IRS and legal regulations.
The Affordable Care Act (ACA) requires that any company with 50 or more employees must offer affordable health insurance coverage. The health insurance marketplace online helps you find what type of health insurance plan works best for you. And as a small business owner, the health insurance marketplace also allows you to shop for coverage that’s uniquely designed for companies of your size. You can use the health insurance cost calculator (2023) to get an idea of how much health insurance coverage is.
Another rule to consider is the Employee Retirement Income Security Act (ERISA). This regulates health insurance plans for your employees, including small business group health insurance plans. Employees must be provided with a summary plan and follow reporting and disclosure requirements under ERISA.
COBRA, or Consolidated Omnibus Budget Reconciliation Act, requires that employers continue offering health coverage to employees and their dependents in the case of an event like termination or reducing hours per pay period.
And lastly, the Health Insurance Portability and Accountability Act (HIPAA) requires the regulation of privacy and security of health information for all employees. It protects individuals' personal health information.
Following the rules for offering health insurance to employees can prevent potential penalties, and helps keep the employer-employee relationship positive.
QSEHRA rules
QSEHRA rules for employers and employees include some standard HRA rules associated with every HRA account. For example, the business owns the HRA, not the employee. Only the company can put money into the HRA, HRA funds do not earn interest, and the business determines the amount contributed to the HRA.
Employees can use QSEHRA money to pay for personal and family medical expenses. The rules for reimbursement from a QSEHRA are found in IRS Publication 502, and any unused money stays with the business. Rollover of funds for employees with a QSEHRA is not guaranteed. Rollover depends on the type of plan and the business's decision about allowing it or not.
→ Deep dive into HRA Account Rules
What are the QSEHRA rules and 2023 QSEHRA limits?
Businesses with fewer than 50 employees can contribute a maximum of $5,850 for individual employees and a contribution of $11,800 for employees with a family. This is an increase over the QSEHRA 2022 limits! Compared to QSEHRA limits 2023, 2023 QSEHRA limits have increased by $400 for individual employees and $750 for employees with a family annually.
Offering personalized benefits for your small business is possible with Take Command. Our qualified small employer health reimbursement arrangement administration software makes QSEHRA administration simple and easy.
Here’s what you can expect from your QSEHRA when you work with a skilled HRA administrator like Take Command.
Flexible Designs: Customize a plan that fits the needs of you and your mixed workforce employees. Employers can choose different reimbursement amounts for each employee class based on different class distinctions.
Simple Administration: Take Command helps you with the design and management of your QSEHRA. This includes process, compliance, reporting, employee communication, and employer support. We’ll ensure you know the QSEHRA rules, 2023 QSEHRA limits, and what QSEHRA funds can be used for.
No Minimum Contribution Requirements: You can offer different reimbursement allowances based on family status and there are no minimum 2023 QSEHRA limits or minimum contribution requirements, only a maximum limit.
Tax-advantaged: QSEHRA is completely tax-free for employers and tax-free for employees with minimum essential coverage (MEC).
Company health insurance plans
Deciding on health insurance plans for your small business comes with a lot of thoughtful consideration. With different options to choose from, it can feel overwhelming. But it’s important for a small business to offer company health insurance plans.
Apart from the traditional small group insurance plans and self-funded plans, one of the most affordable and flexible options we’ve talked about is an HRA. HRAs allow your employees to purchase individual health insurance that employees reimburse for. They’re proven to be an effective retention strategy, and they can be so easy to implement.
A Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is an efficient way to offer coverage for health insurance and medical expenses to your employees. QSEHRAs are specifically designed for small businesses with less than 50 employees. They offer non-taxed reimbursement meaning employers are able to offer coverage for health insurance benefits in a tax-efficient way without dealing with the headache of traditional group insurance administration. It lets employees be in the driver’s seat for deciding what health insurance plan is perfect for them.
An HRA administrator like Take Command makes it easy for business owners to offer reimbursement for their employees, and we provide personalized support throughout the entire process.
Small business health insurance costs
Looking to offer health insurance to your employees but uncertain about the cost? The pricing typically depends on the size of your business, and what health insurance plan you’re looking to offer. The exact health insurance costs per employee will vary depending on how you decide to offer benefits to your small business. You can use the HealthCare.gov cost estimator for more guidance on estimated plans and coverage prices.
Small business employee benefits can cost a few hundred dollars per month depending on company needs. To determine the price it costs to offer small business health insurance, use this small business health insurance cost calculator and see how much you’ll be expected to spend on health insurance for your employees.
Once you have an estimate of what you’ll be spending on employee health benefits, you may want to know how to reduce small business health insurance costs.
Here are some tips:
- Shop around different insurance providers and make sure to compare the premiums and the out-of-pocket costs your employees may be paying.
- Encourage preventative care for your employees through wellness programs to help employees stay healthy and avoid expensive medical treatments.
- Consider HRAs so employers can set aid pre-taxed dollars for medical expenses, which reduces the total cost of health insurance for the business.
HRAs provide your employees with health insurance coverage of their choice. For example, if an employee of your small business likes the health insurance cost of Blue Cross Blue Shield, they can choose this plan for coverage, then get reimbursed by the employer.
HRAs provide endless possibilities for your employees to take charge of their health insurance coverage while being affordable, compliant, and easy-to-implement health benefit options.
For more information on HRAs, or to get started with an HRA for your small business, connect with us. We’re looking forward to watching your small business succeed, all while ensuring reliable and affordable health insurance coverage.
